High Yield Momentum Portfolio For June

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Includes: CMS, DOW, GCI, HCBK, MRK, PCG, PM, WMB
by: Scott's Investments

Once per month I update a high yield dividend stock momentum portfolio on Scott's Investments. The portfolio comprises the highest yielding stocks in the S&P 500 with high price momentum.

The portfolio is a simple quantitative strategy and begins by screening the S&P 500 for stocks yielding greater than 4%. The results are then ranked by their 6 month returns. The top stocks are then added to a hypothetical portfolio and tracked publicly on Scott's Investments. This month there were 61 results this month, two more than last month.

Per a previous article, the highest momentum, high-yield stocks have historically out-performed lower yielding, lower momentum stocks. The screen is more of a trading strategy and less of a passive income strategy, although the dividends do play an essential component in the overall returns. Thus, turnover could be high and the strategy is not for everyone but I have added a modification to the strategy to minimize turnover.

In order to limit turnover stocks with yields that have fallen below 4% due to share price appreciation will remain in the portfolio. Stocks will only be sold when yield falls below 4% due to dividend cuts or when the six-month performance would otherwise lag the top 10-11 stocks in the screen. .

The portfolio has turnover in four positions for June. Gannett (NYSE:GCI), Merck (NYSE:MRK), Philip Morris (NYSE:PM), and Hudson City Bancorp (NASDAQ:HCBK) are all being sold due to lagging price momentum. The proceeds were used to purchase positions in PG&E (NYSE:PCG), The Dow Chemical (NYSE:DOW), William Companies (NYSE:WMB), and CMS Energy (NYSE:CMS).

The High Yield Momentum Portfolio was designed to be fully invested at all times regardless of market conditions. However, as part of a larger portfolio there may be additional steps an investor can take to reduce risk and diversify strategies. For example, the Ivy Portfolio uses a 10 month moving average to dictate an invested or cash position (signals are updated daily at Scott's Investments). An investor could hedge long positions by shorting (or purchasing an inverse ETF) an equity market index such as the S&P 500 when it trades below a long-term moving average.

Below are the top 15 high yield momentum stocks as of June 11th. Keep in mind that only 10 stocks are held in the portfolio, the 4 new additions are in bold and the current holdings can be viewed on the right-hand side of Scott's Investments and in the second table below.

Since inception the portfolio is up 6.32%, down over 3% versus last month's update. Returns exclude commissions, taxes, and are hypothetical:

Ticker

Company

Dividend Yield

Payout Ratio

Performance (Half Year)

FII

Federated Investors, Inc.

4.85%

64.57%

31.37%

CINF

Cincinnati Financial Corp.

4.45%

137.37%

27.23%

T

AT&T, Inc.

5.09%

249.25%

23.32%

PCG

PG&E Corp.

4.04%

83.60%

21.47%

DOW

The Dow Chemical Company

4.06%

53.49%

19.73%

MO

Altria Group Inc.

4.98%

96.90%

18.69%

WMB

Williams Companies, Inc.

4.10%

68.10%

17.74%

CMS

CMS Energy Corp.

4.09%

64.71%

16.82%

KIM

Kimco Realty Corporation

4.26%

244.35%

16.67%

LO

Lorillard, Inc.

5.04%

67.74%

15.61%

VZ

Verizon Communications Inc.

4.70%

212.49%

15.53%

DTE

DTE Energy Co.

4.04%

57.60%

15.52%

DUK

Duke Energy Corporation

4.35%

89.36%

14.76%

PGN

Progress Energy Inc.

4.16%

118.01%

14.42%

PNW

Pinnacle West Capital Corporation

4.14%

68.11%

14.04%

Click to enlarge

Data source: Finviz.

Current positions including the new updates:

Position

Shares

Purchase Date

Percentage Gain/Loss Excluding Dividends

Current Yield

MO

312

05/11/12

3.68%

4.98%

DOW

334

06/11/12

0.00%

4.06%

CINF

312

02/10/12

5.05%

4.45%

WMB

360

06/11/12

0.00%

4.10%

FII

529

03/12/12

-5.17%

4.85%

T

295

05/11/12

2.98%

5.09%

CMS

448

06/11/12

0.00%

4.09%

KIM

628

04/10/12

0.34%

4.26%

PCG

233

06/11/12

0.00%

4.04%

LO

87

02/10/12

0.41%

5.04%

Click to enlarge

Disclosure: None.

Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com.